The High Cost of Living

A transcript of the weekend's program on FOX News Channel.

Updated March 7, 2011 12:01 a.m. ET

Stuart Varney: This week on "The Journal Editorial Report," turmoil in Libya sends oil prices soaring. You are already paying more at the pump and the grocery store. Ben Bernanke says not to worry, but should we? And Ohio takes a big step towards reining in public unions. The opposition is digging in, and new polls suggest the public supports collective bargaining. Will Republicans hang tough or fold? And a Supreme Court bombshell. All but one justice rule in favor of the Westboro funeral protesters. Was it the right call? There is a debate on that ahead.

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Varney: Welcome to "The Journal Editorial Report." I'm Stuart Varney, in this week for Paul Gigot.

Well, are you feeling the pinch? Oil prices spiked this week amid continuing unrest in Libya and the Middle East. And that means higher gas prices, higher grocery prices for you. Pump prices, already the highest ever for early March, could reach $4 a gallon by summer. But Federal Reserve Chairman Ben Bernanke doesn't seem all that worried. He told Congress this week that rising gas prices are not a significant risk, yet, to the economic recovery.

Steve, let's start with you. This is inflation that you can see. You can feel it every single day, the gas price spike. But Ben Bernanke says don't worry about it. Is he playing with fire?

Moore: Tell me about it, Stuart. You know, you were saying gas prices will be $4 a gallon this summer. I live in Northern Virginia, where I just paid $3.79 a gallon. So we almost already have $4 a gallon. And look, if that oil price continues to rise, we could see near $5-a-gallon gasoline. And this is something that we've warned about on the editorial pages for the about last two or three years, that all of this money that Ben Bernanke at the Fed has been just flushing into the U.S. economy--at some point, that does ignite inflation. And we're not just seeing that in oil prices, Stuart. We're also seeing that--last week, the highest wheat prices in history. Airlines, just this weekend, declared that they're raising prices again. So, yeah, we're starting to see that specter of inflation.

And one last point, if I may, Stuart. What this is starting to remind me a little of, and I almost hate to say this, is that dreaded word, stagflation of the '70s, which, of course, as you remember, Stuart, that's high unemployment and rising inflation at the same time.

Varney: Yeah. All right, Dan, what do you say?

Henninger: Well, you know, the president of the European Central Bank, Claude Trichet, has also been watching these prices. And the Europeans tend to be a little bit more skittish about inflation than we are. It's done terrible damage to European economies over the past several decades. And what he said was, he's very concerned that these higher fuel prices and higher food prices are feeding into general inflation. In other words, the Fed doesn't regard these commodities, which occasionally spike seasonally, as part of generalized core inflation. He's worried about it, and he's suggesting that if it continues in the future, they may start raising interest rates. But our Fed is talking about keeping rates at zero.

There's a kind of brinksmanship, I think, that's taking place in the United States at the Federal Reserve. They simply want more demand to take place out in our economy. Until they get more people buying a lot more things, they're going to keep pushing money into their pockets.

Varney: But do we get inflation?

Henninger: Well, theoretically, we should get inflation at some point. It's beginning to show up at the margins with food and fuel.

Varney: Is it such a bad thing if you get a little bit of inflation and rapid economic growth?

Henninger: The difficulty is how do you predict or hold it down to a little bit of inflation. You could get an inflationary spike. If it went up to 4% or 5%, that immediately means that people's assets are reduced by 4% or 5%, and we're back to the same position we were with the financial crisis when people lost the value of their 401(k)s.

O'Grady: You know, Stuart, I think that one of the problems here is that you're not factoring in what they call inflationary expectations, which is, once people start to think that everything is going to be more expensive later on, they start to spend more aggressively. And that's when you get too much money chasing too few goods, which is really what inflation is. And I think one of the big fears is that Ben Bernanke seems like he's completely prepared to finance government spending. So the government, you know, has this huge deficit problem. If the Federal Reserve starts printing money in order to finance the deficit problem, that's when you get sort of an Argentine-like inflationary spiral.

Varney: Them's fighting words--an Argentine-like inflationary spiral.

O'Grady: Well, obviously, no one thinks it's going to go to triple digits. But the point is that it starts to raise expectations, and when you raise expectations, the whole market starts to become more aggressive about buying today what they thought--what they would rather buy tomorrow, because that think tomorrow it's going to be more expensive than it is today.

Varney: Steve Moore, the left is urging on the printing presses.

Moore: They sure are.

Varney: Christina Romer is looking for QE3, QE4, may go to QE10--who knows? What do you make of that?

Moore: Well, just--you know, a lot of people probably don't even know what QE is. But it's quantitative easing, which means, what the Federal Reserve have been doing for the last number of months, Stuart, is basically printing money and then using that money to buy the government's debt. So the Treasury Department, the left hand of the government, is issuing the debt, and the right hand of the government, the Federal Reserve, is buying the debt.

Now here is the danger, and it gets to the point that Mary was just making. If interest rates start to rise as inflation rises, because those two things move in tandem, think about this, Stuart. What impact will that have on the federal budget if federal borrowing costs rise by another couple of interest-rate points? You're talking about potentially a trillion dollars a year of borrowing costs to finance this enormous debt.

Varney: I've got 20 seconds, Steve. How close are we to a real financial crisis, do you think?

Moore: Well, I think the economy is getting better right now. The problem is, you can't put that genie back in the bottle when you start spitting money into the economy.

Varney: All right.

When we come back, forget Wisconsin. Ohio moves to the front lines of the union battle. But with the opposition digging in and polls suggesting the public supports collective bargaining, will Republicans hold firm, or will they fold?

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Varney: After Wisconsin's standoff continued, Ohio lawmakers this week moved a step closer to curbing union power in their state. The Senate approved restrictions on collective bargaining and banned strikes by public-sector workers. The move comes just as a new Wall Street Journal poll finds 62% oppose efforts to strip government workers of their collective-bargaining rights.

So, is it a winner for Republicans? Or have governors like Wisconsin's Scott Walker and Ohio's John Kasich overplayed their hand?

We are back with Dan Henninger and Steve Moore. And also joining the panel, OpinionJournal.com editor James Taranto.

To you first, Steve. Seems like Republicans have gone against the polls. Are they therefore on the losing side of this issue?

Moore: You know, this is a fight of, I think, epic proportions. Stuart. I think you can't understate how critical this is to repairing the finances of every state and city in America. So this isn't just about Wisconsin. It's about the other 49 states and hundreds of cities that are on the verge of bankruptcy because of these enormous pensions.

Now look, I saw the same poll that you just mentioned. And it is disturbing. It means that Republicans aren't winning the PR war. What they have to emphasize, in my opinion, Stuart, is this is not a fight between Scott Walker and the Democrats. This is a fight between the public employee unions and taxpayers. And the outcome is going to determine who really runs state governments. Is it the taxpayers, or is it going to be these public employee unions that have benefits that are twice as generous as what the private-sector workers get?

Varney: Dan?

Henninger: Well, you know, Steve, we had a poll that was a lot bigger than last week's. In was in November. It was called the off-year election, right?

Moore: That's right.

Henninger: And in that November election, people voted overwhelmingly to put these Republican governors and legislators in charge in Ohio and Wisconsin. And they did it because they had been told the fiscal condition of their state. Now, I think when you have a poll that says people favor collective bargaining, essentially what they mean is they're in favor of unions' being able to form and bargain for wages.

Moore: Right.

Henninger: But these bills have been very interesting. In Ohio, they are allowing them to collectively bargain for their wages, up to the inflation rate, but not for the pensions and benefits, which is the two things that have been driving the state budgets over the cliff. And I think once that's explained to people, they understand there is a trade-off that has to be made.

Varney: James?

Taranto: Well, I'm very skeptical of these polls. If this is a political winner for the Democrats, why are they hiding out in Illinois? Why don't they go there, participate in the normal democratic process, vote en masse against Walker's plan, and then run on this in 2012 and 2014? If it were a winning issue for them, I would think they would not be running away from it.

Varney: Well, let's suppose for a moment that the effort stalls. I'm going to call it a revolutionary effort to rein in public-sector unions. Now supposing it stalls. Steve, what are the repercussions of a stall in this effort?

Moore: What it does, Stuart, is it emboldens these unions in all of these other states. That's why I keep saying, this isn't just about Wisconsin. People all over the country, who are taxpayers, who care about the finances of their states, care about getting--you know, just as one example, Stuart, one issue here is, should education dollars go to the classroom, or should they go to retired teachers? If we want the best schools in the country, we can't be funneling money into supersized pensions and retirement benefits.

And there's one other thing, if I may. If they don't succeed in Wisconsin, if Scott Walker doesn't get this bill passed, you're talking about a thousand dollar increase in property taxes for every family in the state of Wisconsin.

Varney: OK, James?

Taranto: Well, we should keep in mind what collective bargaining means, with public-sector unions. It is not the same as the private sector, where you have a clear competition of interests and people negotiate. Public-sector unions help elect politicians, who then sit on the other side of the bargaining table and give the public-sector unions what they want. They are essentially on both sides of the table.

Varney: OK, now--OK, if you cannot rein in collective bargaining, if the effort stalls, does that mean that you can't get state finances in good shape in years to come?

Taranto: Yes. It means that we simply prolong this crisis. And eventually we'll have to do something about that, but it makes the crisis that much worse.

Henninger: Over the next two years, Wisconsin faces a deficit of $3.6 billion. It has to be gotten somewhere. If they can't get it out of this process, they will take it out of the Wisconsin higher education system. The hallowed University of Wisconsin will be essentially defunded, as will environmental spending in Wisconsin. It has to come from somewhere. And because of the outsize scale of these pensions and benefits, that's the place where they'll do it right now.

Varney: OK, Steve, it started in the Midwest. Could it spread to California and points beyond?

Moore: It has to, Stuart. I mean, California's problems are an order of magnitude worse than the ones even in Wisconsin that Dan was mentioning. So, yes, Wisconsin has to do this, New York has to do this, California. And by the way, the good news here, Stuart, is there are about 25 governors who want to adopt the Scott Walker model and, for the first time in a generation, take on some of these outrageous pensions and health-care benefits.

Varney: All right, thank you.

When we come back, the Supreme Court issues a very controversial ruling with all but Justice Samuel Alito siding with the Westboro Baptist Church funeral protesters. Dorothy Rabinowitz is here to tell us why she thinks those eight justices were flat-out wrong.

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Varney: In perhaps the most controversial case of the term, the Supreme Court ruled this week that members of the Westboro Baptist Church, who picketed outside the 2006 funeral of Marine Lance Cpl. Matthew Snyder with signs that said "God hates the USA," and "Thank God for dead soldiers," had a constitutionally protected right to do so. Justice Samuel Alito was the lone dissent in the 8-1 decision, writing that the church protests went too far. Quote, "Our profound national commitment to free and open debate is not a license for the vicious verbal assault that occurred in the case." That's what Mr. Alito wrote.

We are back with Dan Henninger and James Taranto. And also joining the panel is Wall Street Journal editorial board member Dorothy Rabinowitz.

To you first, James, if I may. Lay out the case for the majority, the eight.

Taranto: Well, what happened here was, the father of this corporal who was killed in action filed a suit against this Westboro Baptist so-called Church for intentional infliction of emotional distress. And what the court ruled was that by picketing in an orderly fashion, in compliance with all laws, outside the funeral, because they were--this was speech in a public place and on matters of public concern, it is entitled to special protection and it can't be subjected to this tort of infliction of emotional distress.

Varney: And Dorothy, why do you think that is so hopelessly and completely wrong?

Rabinowitz: Hopelessly--"matters of public concern," a soldier's private funeral. Let me say that the purists defending the First Amendment in this exceedingly strange way, now have this one standard for us all. Everything that runs counter to normal human feeling, everything that runs counter to instinctive decency, is that which is the test of their purity. That is, if you can violate those standards, then you are the purist of the First Amendment. This is quite bizarre. And I have to say that Samuel Alito has become the one standard-bearer of rationality. He was the one who, last April, dissented from the animal porn amendment, which would have allowed tiny little animals, you know, to be crushed by women in high heels in the name of the extension of free speech, Justice Alito said, and he knows in this case, too--

Varney: So do you want the government to decide what opinion you may voice publicly and which opinion you may not voice publicly?

Rabinowitz: That is the false question that's always put. If we as a democracy cannot make a distinction between what is bearable and what is tolerable in our society for fear that there will be a slippery slope that will allow every--we are already on a slippery slope because of the First Amendment purism. Every crackpot, every malevolent crackpot, every jihadi with an ACLU lawyer already knows what we do.

Henninger: Well, just to pick up on Dorothy's point, I supported the decision. It's basically hurtful speech. I don't think we can change the First Amendment because of what is essentially distasteful speech.

That said, the First Amendment, I think, is under increasingly great pressure because of modern media. There are all sorts of crackpots out there, on the Web, they get covered by television, and everyone sees about--they see about this Westboro case. And the general public gets more and more upset about what they perceive as the First Amendment's liberalities.

My concern is with something that Dorothy just mentioned, which is fiery imams on the Web, preaching hate, going to the edge of violence. They are, in fact, protected by the First Amendment. The sort of thing that led to the killings at Fort Hood are protected by the First Amendment. And I would like to see some push-back against that level of speech.

Varney: Let me raise one more issue. The father of the soldier whose funeral was protested by these people--he went on to say this would encourage--this decision by the Supreme Court would encourage people to take matters into their own hands, a somewhat provocative statement by the father of the dead soldier. Do you make anything of that, Dorothy?

Rabinowitz: No. It's irrelevant to the basic discussion. But I have to say that the father uttered another comment, which in all its disrespect, cuts to the heart of things. He said, here you had seven justices--six justices who showed they didn't have the sense God gave a goat.

Varney: He did say that. That is correct.

Rabinowitz: He did say that.

Taranto: Well, let me say in defense--a word in defense of the protection of outré speech. Many landmark First Amendment cases involve people who are just despicable: Ku Klux Klansmen, neo-Nazis, pornographers--the Hustler v. Falwell case. You know, they're speech that we would not defend in terms of the substance of the speech. I look at it as sort of like the war on terror, you know, we fight them over there so we don't have to fight them here. There are a lot of people who would like to close down this network, including some in the government. Now, we would win that battle if they brought it. But because of people like these wacko Westboro Baptist Church people, we don't have to fight that battle because the outer limits of free speech are so far out from where we are.

Varney: Before we close, I want to say something, and you'll have the last word, Dorothy. I am proud to live in a society where we defend free speech to the nth degree. I do not wish to live in a society like Canada, which restricts it at every opportunity. And you say?

Rabinowtiz: And I say that the nth degree is not what you represent, because we are a free and democratic society. It is in our national bloodstream. And we have very little chance of going over the edge where we shut down this agency. These are the false premises on which this absolutely mad, empty defense of the First Amendment stands.

Varney: That was the last word, and it was a pretty good one, Dorothy.

Rabinowitz: All right, thank you, Stuart.

Varney: It's all right. Thank you very much.

We have to take one more break. When we come back, our "Hits and Misses" of the week.

***

Varney: It's time now for our "Hits and Misses" of the week. James, to you first.

Taranto: At a congressional oversight hearing this week, Stuart, Attorney General Eric Holder was asked if racial bias played a role in the Justice Department's decision to dismiss voter-intimidation charges against the New Black Panthers Party. He denied it and then went on to say that what the Black Panthers did, while "inappropriate," was much less serious than what was done to, and I quote, "my people." I have a big miss to Eric Holder for forgetting that when you're the top law enforcement officer of the United States, your people are the people of the United States of America--all of us.

Varney: Got it. Dorothy?

Rabinowitz: I have a big miss, too, to all of those people who found a way to exculpate and excuse the fashion designer John Galliano because he was under stress of his fashion show. Now, this is the man who, of course, shouted to bar patrons that he loved Hitler, and there would be people going to the gas chambers. Now, the question, to one Daphne Guinness, one of the prime promoters, who said that this is his pressure: Let us know, Daphne, just how it is that this man chose to express his tension about fashion by expressing his love of Hitler and the gas chambers. Call me and tell me.

Varney: Dorothy, I hope I never cross you. I don't want to be a miss on your list, that's for sure. Mary?

O'Grady: Stuart, March 9 is Ash Wednesday, and Christians all over the world are going to begin 40 days of fasting and abstinence. And if this traditional way of a period of deprivation depresses you, why not consider a carbon fast? This is the idea of the United Church of Christ, their environmental ministries. And they are--and I like it, actually, because why should you deprive yourself of whiskey and food when you can just jump in a hybrid taxi and save your soul?

Varney: Oh, if you jump in a hybrid taxi, you are giving up carbon? I think not. Is this a miss to the United Church of Christ, or what?

O'Grady: Well, as I say, I like it.

Varney: It's a hit? Mary Anastasia O'Grady, I am shocked. But thank you, one and all.

That is it for this week's edition of "The Journal Editorial Report." You can catch "Varney & Co." weekday mornings, 9:15 a.m. Eastern, on the FOX Business Network. Paul is back next week. Hope to see you then.

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